French corporate bond supply has plummeted to its lowest level since 1998 and, unlike seven years ago, bankers do not have the euphoria of the countryâs first football World Cup victory to boost their spirits.

Although the €22.8bn ($27.1bn) raised by French companies in the first nine months of this year is triple the €7.9bn raised in the first nine months of 1998, according to investment banking research company Dealogic, bankers will be concerned that volumes are at their lowest since that year.

The French supply slump has outstripped the decline in debt issuance from companies across Europe, which enjoyed a record first half of the year before plunging in the third quarter.
French corporate bond supply slipped 28% in the first three months and, although a better second quarter lifted bankers’ spirits, a disastrous three months to the end of September has hammered morale.

The period was the third-worst quarter since the end of 1999 and left French corporate debt supply after nine months down 11% from last year and 55% below a peak of €51bn at this stage in 2001 at the height of the telecoms boom.

The slump comes despite the fact that the number of benchmark deals worth €500m or more has risen this year. Supply has been hit by a fall in the total number of French corporate deals in each quarter this year compared with volumes in the past two years.

Fred Zorzi, co-head of European debt syndicate at BNP Paribas, said: “Most companies have lower fundraising needs and we didn’t expect the latter part of this year to be that busy. But while supply has dropped, the range of companies issuing has expanded. While higher M&A volumes don’t necessarily translate into a surge in debt funding, it will help supply next year, although we won’t see the levels of 2000 and 2001.”

Julien Lefournier, who joined Calyon last month as a managing director and head of French corporate debt origination, said: “This year has been difficult for supply. It was extremely tough to issue debt in March and April because of the fallout from correlation trading and the carmaker downgrades, and the European Union prospectus directive also hit supply when it came into effect in July.”

Several French companies, including rail operator SNCF, environmental services company Véolia, luxury goods group LVMH and retailer Auchan, crowded into the debt market in May and June ahead of the directive.

Bond supply has since dried up and one gloomy debt origination banker said: “There have been hardly any multi-billion deals in France and there is not a big pipeline before the end of the year.”
Last week’s benchmark deal from France Télécom, which used a squad of six French and foreign banks, boosted supply but it also exemplified the corporate debt market’s woes.

Bankers had expected the deal from the French company, one of the most popular corporate debt issuers in recent years, to be a huge success, particularly given the lack of other benchmark supply and the fact that it will be France Télécom’s only big bond this year.

By some measures the deal was a success; it was the year’s second-largest transaction in the European corporate bond market and was oversubscribed. However, it was not as well received as expected and the banks, which included heavyweight bond houses Barclays Capital, SG, Deutsche Bank and JP Morgan, were forced to boost the yield to ensure demand.

Despite the sweetener, France Télécom sold only €2bn of bonds, the lower end of the €2bn to €2.5bn range it had been targeting.

One banker familiar with the deal said: “The bookrunners obviously thought too much of the level of hunger that was actually there in the market.”

Despite the poor demand, the deal is the largest French corporate offering this year, eclipsing a €1.5bn dual-tranche offering from electronics group Schneider Electric in August.

Bankers already have half an eye on next year. Lefournier said: “Bond redemptions will be higher, companies have complied with the requirements of the prospectus directive and we should also see more M&A-related supply, so the overall picture should be brighter.”